HRnetGroup - RHB Invest 2020-03-02: Headwinds Further Intensified By COVID-19

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HRNETGROUP LIMITED (SGX:CHZ)

HRnetGroup - Headwinds Further Intensified By COVID-19

• In our previous report HRnetGroup - RHB Invest 2019-11-11: Challenges Lie Ahead; Still BUY, we highlighted that we expect Singapore hiring to be weak due to the tough macroeconomic environment. However, with the impact of the COVID-19 outbreak, it should see further headwinds.
• We cut HRnetGroup (SGX:CHZ)’s FY20-21F earnings by 10%/15%, resulting in a lower Target Price (pegged to 12x FY20F P/E).

Hiring in Singapore and Greater China expected to be weak

• Management highlighted that the COVID-19 outbreak had a significant impact on regional economic growth, especially in Singapore and Greater China – which account for 91% of the group’s gross profit.

1Q20 and 2Q20 performance likely dampened.

• Management revealed that the uncertain business environment is affecting its operations this quarter, in terms of its clients’ decisions on hiring and start-work dates of selected candidates – as companies take time to reorganise logistics, processes and the flow of their human capital. This may impact revenue recognition from cases where candidates have already signed the letter of appointment, but have not begun working at their place of employment yet.
• The pipeline of hires for 2Q20 may also be affected, depending on how the COVID-19 outbreak is contained in 1Q20.

Dividend yields likely sustainable.

• HRnetGroup announced a 2.8 SG cent DPS for FY19, in line with our forecasts and at about 55.8% of its PATMI. With its net cash balance sheet and strong cash flow generation, we expect such dividends to be sustainable, even for FY20F.

Uncertainties and headwinds cloud outlook.

• With the COVID-19 outbreak spreading across the world, the impact on the global economy will likely be severe, and hiring will likely slow down or be impacted significantly, at least for FY20F. As such, we downgrade our earnings estimates and call to NEUTRAL – as its balance sheet and cash flow remain robust, and yields are respectable – while we wait for the macroeconomic environment to improve.
• See HRnetGroup Share Price; HRnetGroup Target Price; HRnetGroup Analyst Reports; HRnetGroup Dividend History; HRnetGroup Announcements; HRnetGroup Latest News.

Jarick Seet RHB Securities Research | https://www.rhbinvest.com.sg/ 2020-03-02

SGX Stock Analyst Report NEUTRAL DOWNGRADE BUY 0.61 DOWN 0.810